BEIJING, Oct 15 — China’s leading private enterprises reduced their workforce by 314,600 jobs in 2023 despite slight financial growth, according to the All-China Federation of Industry and Commerce.

The 500 firms employed 10.66 million people last year, down from 2022, raising concerns about how the domestic economic slowdown is impacting private businesses, reported South China Morning Post (SCMP) today.

"The fact employment fell despite revenues rising highlights the uncertainty facing firms,” said Moody’s Analytics economist Harry Murphy Cruise.

"Increased automation and a push to lift efficiency in highly competitive markets could also be a factor.”

Most of the surveyed firms belong to the manufacturing sector, which accounted for 66.4 per cent, or 332 companies, up from 322 in the previous year.

Manufacturing, a traditionally labour-intensive sector, has faced challenges as the world’s second largest economy attempts to shift towards intelligent production to remain competitive amid labour shortages.

More than 60 per cent of the top private firms are digitalising their workflows and services, the federation reported.

The net profits after taxes of the 500 enterprises increased by nearly 3 per cent to 1.69 trillion yuan (RM1.03 trillion), with over half of the companies reporting profit growth.

The workforce reduction reflects the steepest decline since employment among these firms began increasing in 2011, underscoring the impact of the ongoing slowdown on China’s labour market.

Broad layoffs were seen across major sectors such as real estate, internet services, automotive and finance last year.

"Investment in sectors outside of manufacturing is crawling and firms are scaling back hiring. That is unlikely to change soon,” said Cruise, referencing September’s purchasing managers’ index, which showed non-manufacturing hiring intentions at their lowest since December 2022.

Cruise also noted that restrictive regulations and policy uncertainty are holding back private businesses.

China’s State Administration for Market Regulation head Luo Wen yesterday pledged to reduce corporate burdens by cutting institutional costs for companies.

He promised equal treatment for private firms and vowed to eliminate any discriminatory policies based on ownership.

The private sector plays a significant role in China’s economy, contributing over half of the country’s tax revenues, more than 60 per cent of the national GDP, and employing over 80 per cent of urban workers.

The majority of private firms in China are small and medium-sized enterprises, making them especially vulnerable to domestic and international challenges.

While Beijing recently introduced draft legislation to support the private economy, analysts remain cautious about its effectiveness.

Natixis economist Alicia Garcia-Herrero said the proposed legislation appears to prioritise technology firms over service-oriented industries, leaving them with less support.

As of yesterday, China’s Ministry of Justice had received over a thousand suggestions for the draft law, which remains open for public feedback until November 8.

"Firms have been burnt before by promises that fail to materialise,” Cruise said, as quoted by SCMP.

"This latest legislation looks closer to becoming a reality than many previous attempts. And in the face of rising tariffs and trade barriers, the impetus to promote private sector activity at home is higher than it has been for some time,” he added.